On November 1, 2018, the Federal Deposit Insurance Corporation (the “FDIC”) issued modifications to its Statement of Policy (“SOP”) for applications made under Section 19 of the Federal Deposit Insurance Act (“FDIA”).  The modifications are expected to reduce the number of Section 19 applications FDIC-supervised institutions must submit prior to submitting offers of employment.

Background

On January 8, 2018, the FDIC published in the Federal Register notice of proposed modifications and sought public comment.  On July 19, 2018, after consideration of comments received, the FDIC approved modifications to the SOP’s exceptions to filing an application and made additional technical and clarifying changes.

What Is Section 19 of the FDIA?

In general, Section 19 prohibits, without the prior written consent of the FDIC, a person convicted of any criminal offense involving dishonesty, breach of trust, money laundering, or who has entered into a pretrial diversion or similar program (program entry) in connection with a prosecution for such offense, from participating in the affairs of an FDIC-insured institution.

What Modifications Were Made to Section 19 Applications?

• The de minimis exceptions, under which the FDIC’s consent is automatically granted and an application is not required, have been modified to encompass convictions or program entries for issuance of insufficient funds checks of moderate aggregate value; small dollar, simple theft; and isolated minor offenses committed by young adults.
• A Section 19 application is not required for covered drug-related offenses if certain de minimis criteria are met.
• Banks may now offer prospective employees conditional offers of employment pending a background check, provided that the individual does not begin employment until the institution verifies that the individual’s participation is not barred by Section 19.
• The FDIC has also made certain clarifying modifications to further define the terms “complete expungement,” “jail time” and “pretrial diversion or similar programs.”

To read the FDIC’s updated SOP covering Section 19, click here.

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